New risks for business as indirect tax regimes sweep the globe
London, 1 March 2016
- More than 160 countries now levying VAT/GST, including the first US jurisdiction
- Indirect tax rates continue to escalate globally as governments respond to revenue shortfalls
- Businesses need to prepare as new tax rules respond to the rise of digitization
More countries than ever are adopting indirect tax regimes as they respond to revenue shortfalls and digital innovation, according to EY’s Indirect Tax in 2016 – an in-depth review of indirect tax developments and trends across more than 100 jurisdictions. The report also finds that the global trend for increasing indirect tax rates continues, and identifies new risks for businesses adapting to unparalleled change in the tax landscape.
More than 160 countries are now levying value-added tax (VAT) or goods and services tax (GST) to boost revenue. New indirect tax systems have been introduced in a number of countries, most notably Puerto Rico from April 2016 – the first US jurisdiction to introduce such a system. China, the Gulf Cooperation Council countries and India among others, have also announced major changes to existing arrangements, further widening the net of levies across the globe.
The unprecedented rise in VAT and GST rates is also continuing globally, despite signs that rates are becoming more stable – or even slowing – in parts of Europe.1 Notably, excise taxes have increased on alcohol and tobacco in numerous countries over the last 12 months, and many have broadened the tax base, or plan to do so. The report finds that the rate hikes are in part due to global trends such as low oil prices, which are requiring governments to offset tax losses.
Gijsbert Bulk, EY’s Global Indirect Tax Leader, says: “The indirect tax landscape is seeing huge changes, which brings with it new complexity and cross-border liabilities. New rules and regimes create greater risk of non-compliance, and it is now more important than ever that companies monitor the impact on pricing and margin holistically across the business.”
Rise of digitization and data collection brings great change and new risks
The report highlights the impact of digitization in driving jurisdictions to find new ways to draw revenue. The advent of digital consumerism has brought tax losses on low-value, cross-border purchases that do not meet the levy threshold, and governments are now taking protectionist measures in response. And as the purchase of physical goods increasingly gives way to downloads of digital products such as e-books, governments are scrambling to develop innovative rules to levy taxes.
Accordingly, more jurisdictions are implementing electronic auditing, and the amount of data collected is growing exponentially, placing greater administrative burdens on business. Increasingly, governments are seeking information about transactions in real-time, bringing new complexities for businesses using multiple distribution channels and making it more challenging for companies to control their own data. With technologies such as “block chain” becoming more widely adopted, this trend is likely to continue.
Bulk says: “A lack of coordination across geographies, and increasing administrative burdens, present new pitfalls for business and increase the urgency for a uniform, global approach to the application of indirect tax systems. Companies need to establish a proactive and robust indirect tax strategy to keep up-to-date with this rapidly changing climate.”
Source: EY – based on OECD and EU data. See Figure 1 of Indirect Tax in 2016.
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About the report
Indirect Tax in 2016 is an in-depth review of indirect tax developments and trends across more than 100 jurisdictions. The report also explores the steps business leaders should be taking to prepare for rapid change in the year ahead.
About EY’s Indirect Tax Services
Indirect taxes, ranging from VAT and customs duties to environmental levies, affect the supply chain and the financial system. They pose unique challenges to multinational tax functions, since they must be managed accurately and in real time. These often “invisible taxes” can have significant impacts — on cash flow, absolute costs and risk exposures.
Thanks to our network of dedicated Indirect Tax professionals, who share knowledge and ideas, we can provide a seamless, consistent service throughout the world and deal effectively with cross-border issues. These include advising on the VAT treatment of new and complex transactions and supplies and helping resolve classification or other disputes and issues with the authorities.
We provide assistance in identifying risk areas and sustainable planning opportunities for indirect taxes throughout the tax life cycle. We provide you with effective processes to help improve your day-to-day reporting for indirect tax, reducing attribution errors, reducing costs and helping to ensure indirect taxes are handled correctly.
We can support full or partial VAT compliance outsourcing, help identify the right partial exemption method and review accounting systems. Our Global Trade team help you manage customs declarations, audit and review product classifications and evaluate import/export documentation. Our globally integrated teams give you the perspective and support you need to manage indirect taxes effectively.